Management Accounting - Essay Example

In the ABC approach, the costs are computed based on the activities and not on the labour or machine hours. Each activity has a cost driver attached to it and the ABC system utilises this cost driver to distribute the costs among the products (12 Manage, 2008). When the ABC Costing approach was followed, the profit margin per unit for Parrot was recorded as £ 87.09 and that for Toucan was computed as £ 63.88. In this case, the difference of profit per unit amounts to only £ 23.21. ABC system indicates that the profit from Toucan is actually higher as opposed to the absorption costing system.

Also, the cost drivers indicate that the M/C setup takes up a high amount of costs as the overheads. Hence it is made evident that the number of setups has to be reduced. This will result in higher profits for Bird Gardens (Cokins, 2001). In order to analyse the efficiency and to increase the profits of the company, it is essential to follow the ABC